§ 27-48-4 - Minimum standards.
SECTION 27-48-4
§ 27-48-4 Minimum standards. – (a) The provisions of this section shall apply if, in any calendar year, theaggregate amount of gross written premium on business placed with a controlledinsurer by a controlling producer is equal to or greater than five percent (5%)of the admitted assets of the controlled insurer, as reported in the controlledinsurers' quarterly statement filed as of September 30 of the prior year;
(2) Notwithstanding subdivision (1) of this subsection, theprovisions of this section shall not apply if:
(i) The controlling producer:
(A) Places insurance only with the controlled insurer, oronly with the controlled insurer and a member or members of the controlledinsurer's holding company system, or the controlled insurer's parent,affiliate, or subsidiary and receives no compensation based upon the amount ofpremiums written in connection with the insurance; and
(B) Accepts insurance placements only from nonaffiliatedsubproducers, and not directly from the insured; and
(ii) The controlled insurer, except for insurance businesswritten through a residual market facility, accepts insurance business onlyfrom a controlling producer, a producer controlled by the controlled insurer,or a producer that is a subsidiary of the controlled insurer.
(b) A controlled insurer shall not accept business from acontrolling producer and a controlling producer shall not place business with acontrolled insurer unless there is a written contract between the controllingproducer and the insurer specifying the responsibilities of each party, whichcontract has been approved by the board of directors of the insurer andcontains the following minimum provisions:
(1) The controlled insurer may terminate the contract forcause, upon written notice to the controlling producer. The controlled insurershall suspend the authority of the controlling producer to write businessduring the pendency of any dispute regarding the cause for the termination;
(2) The controlling producer shall render accounts to thecontrolled insurer detailing all material transactions, including informationnecessary to support all commissions, charges, and other fees received by, orowing to, the controlling producer;
(3) The controlling producer shall remit all funds due underthe terms of the contract to the controlled insurer on at least a monthlybasis. The due date shall be fixed so that collected premiums or installmentsshall be remitted no later than ninety (90) days after the effective date ofany policy placed with the controlled insurer under this contract;
(4) All funds collected for the controlled insurer's accountshall be held by the controlling producer in a fiduciary capacity, in one ormore appropriately identified bank accounts in banks that are members of theFederal Reserve System, in accordance with the provisions of the insurance lawas applicable. Funds of a controlling producer not required to be licensed inthis state shall be maintained in compliance with the requirements of thecontrolling producer's domiciliary jurisdiction;
(5) The controlling producer shall maintain separatelyidentifiable records of business written for the controlled insurer;
(6) The contract shall not be assigned in whole or in part bythe controlling producer;
(7) The controlled insurer shall provide the controllingproducer with its underwriting standards, rules and procedures, manuals settingforth the rates to be charged, and the conditions for the acceptance orrejection of risks. The controlling producer shall adhere to the standards,rules, procedures, rates and conditions. The standards, rules, procedures,rates and conditions shall be the same as those applicable to comparablebusiness placed with the controlled insurer by a producer other than thecontrolling producer;
(8) The rates and terms of the controlling producer'scommissions, charges, or other fees and the purposes for those charges or fees.The rates of the commissions, charges, and other fees shall be no greater thanthose applicable to comparable business placed with the controlled insurer byproducers other than controlling producers. For the purposes of this subsectionand subdivision (7) of this subsection, examples of "comparable business" shallinclude the same lines of insurance, same kinds of insurance, same kinds ofrisks, similar policy limits, and similar quality of business;
(9) If the contract provides that the controlling producer oninsurance business placed with the insurer is to be compensated contingent uponthe insurer's profits on that business, then the compensation shall not bedetermined and paid until at least five (5) years after the premiums onliability insurance are earned and at least one year after the premiums areearned on any other insurance. In no event shall the commissions be paid untilthe adequacy of the controlled insurer's reserves on remaining claims has beenindependently verified pursuant to subdivision (d)(1) of this section;
(10) There shall be a limit on the controlling producer'swritings in relation to the controlled insurer's surplus and total writings.The insurer may establish a different limit for each line or sub-line ofbusiness. The controlled insurer shall notify the controlling producer when theapplicable limit is approached and shall not accept business from thecontrolling producer if the limit is reached. The controlling producer shallnot place business with the controlled insurer if it has been notified by thecontrolled insurer that the limit has been reached; and
(11) The controlling producer may negotiate but shall notbind reinsurance on behalf of the controlled insurer on business thecontrolling producer places with the controlled insurer, except that thecontrolling producer may bind facultative reinsurance contracts pursuant toobligatory facultative agreements if the contract with the controlled insurercontains underwriting guidelines including, for both reinsurance assumed andceded, a list of reinsurers with which the automatic agreements are in effect,the coverage and amounts or percentages that may be reinsured, and commissionschedules.
(c) Every controlled insurer shall have an audit committee ofthe board of directors composed of independent directors. The audit committeeshall annually meet with management, the insurer's independent certified publicaccountants, and an independent casualty actuary or other independent lossreserve specialist acceptable to the commissioner to review the adequacy of theinsurer's loss reserves.
(d) In addition to any other required loss reservecertification, the controlled insurer shall annually, on April 1 of each year,file with the director an opinion of an independent casualty actuary, or anyother independent loss reserve specialist acceptable to the director, reportingloss ratios for each line of business written and attesting to the adequacy ofloss reserves established for losses incurred and outstanding as of year endincluding incurred but not reported on business placed by the producer; and
(2) The controlled insurer shall annually report to thedirector the amount of commissions paid to the producer, the percentage thatamount represents of the net premiums written, and comparable amounts andpercentage paid to noncontrolling producers for placements of the same kinds ofinsurance.